March Rotation Doesn't Support Rally

In order to determine the sustainability of market rallies, following the rotation between certain sectors or indices can be quite helpful. The chart below shows red shaded areas to highlight warning signs that appeared at the end of the prior bull market in 2007 and also warned of the 2011 correction. Currently, the S&P 500 is in the midst of a very solid rally off the February 11th bottom. The rally in February was supported by rotation to "risk on" areas of the market. The March rally, however, has lost its luster in terms of relative ratios as money has turned more cautious. It doesn't mean we can't go higher, but it perhaps lowers the odds in my opinion. Take a look at the chart:

The strongest S&P 500 rallies have occurred during those green shaded areas when money has rotated to aggressive areas. When the S&P 500 rallies and those relative ratios drop, it tends to mark significant market tops.

Happy trading!

Tom

About the author:Tom Bowley is the Chief Market Strategist at EarningsBeats.com, where he provides stock market education, guidance, and trading strategies using a unique combination of technical, fundamental, and historical analysis. Tom provides EarningsBeats.com members with four portfolios (Model, Aggressive, Income, and Value), all designed to beat the benchmark S&P 500, and a revolving Watch List of hundreds of companies reporting strong quarterly earnings (must beat both revenue and EPS estimates) and exhibiting technical strength as well. These companies comprise EarningsBeats' annotated Strong Earnings ChartList (SECL), from which Tom trades exclusively. Tom writes a Daily Market Report (DMR) for members to include an executive summary, market outlook, sector/industry watch, and trading ideas.
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